EDITORIAL: Remittance inflows, a desired form of foreign exchange earnings, declined July-November 2023 to 11,044.7 million dollars in 2024 against 12,317.8 million dollars in the comparable period of last year – a 10.3 percent decline.
Three observations are in order. First, exports are generally preferred as a desired form of earning foreign exchange as they reflect a rise not only in domestic productivity and a consequent growth in the Gross Domestic Product (GDP) but also a rise in employment opportunities. It is important to note that exports lagged behind remittance inflows in 2021-22 for two reasons: (i) the Covid-19 lockdown compelled remitters to use the official channels to send money to their families as the illegal hundi/hawala system was only scarcely available; and (ii) exports in spite of significant fiscal and monetary incentives lagged behind remittances because Pakistani exports are extremely susceptible to economic conditions prevailing in our major export destinations, which were suffering from a severe recession during the Covid-19 years.
Second, data shows that while during the first quarter (July-September) 2021-22 remittances were a high of 8,198.6 million dollars against 7,897.2 million dollars in the first quarter of 2022-23, a decline of 3.6 percent for the remaining nine months (October to June); the decline was much sharper – in total terms from 31,278.8 million dollars to 27,332.8 million dollars – 3,946 million dollars - or a decline of 12.6 percent, which is exclusively attributable to Ishaq Dar’s severely flawed policy of artificially controlling the rupee-dollar parity that led to multiple exchange rates with a per dollar difference of between 35 to 40 rupees that re-energised the hundi/hawala system.
And finally, once the hundi/hawala system was re-energised reversing Dar’s policy, as part of the prior condition of the Stand-By Arrangement on which a staff-level agreement was reached on 29 June 2023, remittance inflows through official channels were not invigorated as expected.
Perhaps following in the footsteps of her predecessors, Caretaker Finance Minister Dr Shamshad Akhtar on 15 September 2023 announced an 80 billion rupees incentive package for remitters at a time when the country was suffering from an extremely narrow fiscal space.
The very next day 20 billion rupees had been released to the State Bank under this scheme, though no further disbursements under this account have been reported; however, remittance inflows in September rose to 2,208.1 million dollars (lower than the 2,487.2 million dollars in September 2022) against 2,094.5 million dollars in August 2023 (with August 2022 inflows at 2,815.7 million dollars) though remittances rose in October 2023 to 2,463.1 million dollars (higher than the 2,247.6 million dollars in October 2022, as Dar had begun to control the rupee dollar parity by that time) and then again declined in November to 2250.5 million dollars.
What is extremely disturbing is the prospect of a return to the era of an overvalued rupee in the event of a PML-N (Pakistan Muslim League-Nawaz) win in the forthcoming elections. Political pundits predict that Nawaz Sharif will be the country’s next elected prime minister. One can only hope that better sense would prevail and in the interest of the country’s economic health.
Copyright Business Recorder, 2023
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